How Check Float Works (or Used to Work)

There's less of it than there used to be

Mature woman writing in cheque book, mid section
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Float is the amount of time it takes for money to move from one account to another. Traditionally, the term comes from check writing: The “float” is the period after payment is made with a check, but before the funds actually move from the check writer’s account.

This time period is significant because it’s as if the funds are in two places at once. The money is still in the check writer’s account, and the check recipient may have deposited funds to their bank as well.

How Check Float Works

When you make a payment with a check, the funds don’t leave your account immediately when you write the check (unless you use online bill pay and your bank takes the money immediately). Instead, the recipient needs to deposit or cash the check. Even after a check is deposited, it can take time for the funds to move from your account, so you can potentially have several days of float time.

Example: You write a check for your mortgage or rent and drop it in the mail. The payee credits your account—you are current on your payments because the check arrived on time. Next, your mortgage company deposits the check (physically carrying checks to a branch, mailing a batch of checks, or depositing checks remotely by taking a picture of the check). Their bank requests funds from your bank, and your bank withdraws the money from your checking account.

Several factors can cause delays in this process:

  • Mail delivery takes several days.
  • The recipient might wait for one day or more to deposit the check.
  • The recipient’s bank might take a day (or longer) to request funds from your bank.
  • Weekends and holidays may delay transfers between banks.

Abusing Check Float

When you write a check, you are legally supposed to have funds available in your account to cover the payment. However, checks are rarely processed instantly (although it’s possible, and the process keeps getting faster). As a result, you might get away with “playing the float” when you write a check before you have funds available.

Perhaps you know that it will take some time for the recipient to process your payment, and you know that your paycheck will hit your bank account in the meantime. Alternatively, you might plan to receive (and deposit) checks from others—hoping that anybody who received your checks will be slow to deposit.

In the past, it was easier to take advantage of float time. But technology makes it harder, and the consequences include fees and fines, potential legal trouble, and damage to your credit.

Faster (Electronic) Processing

Check 21: In 2004, Congress passed the Check Clearing for the 21st Century Act (known as Check 21). This Act allows banks to use electronic versions of checks to operate more efficiently. Instead of sending paper checks to each other, banks can use an electronic substitute check. Substitute checks are images of standard paper checks, but banks treat them as official documents, which are sufficient to deduct funds from your account.

Electronic check conversion: Checks that you write to retailers and mail to service providers can also be processed faster. When somebody runs your check through a check reader at the checkout counter, the check may have been converted to an electronic payment, which means they don’t need to send the paper check to the bank.

Faster bank processing means you have less time to get money into your checking account. While you may have had a week or more in the good old days, technology changed things considerably.

Fees, Fees, Fees

If you bounce checks, you’re going to pay fees: Your bank and your payee will most likely charge you.

Overdraft protection: Your bank may cover the check if you’ve got an overdraft protection plan on your account, but it will cost you. Fees have been rising steadily over the years, and you can expect to pay $30 or more for that service. Don’t want to pay? Opt out—it’s an optional feature.

NSF: If you don’t have overdraft protection on your checking account, your bank will still charge a fee for insufficient funds—and they’ll deny payment to your payee.

Returned checks: If you bounce a check because your bank doesn’t pay, you face several fees. First, your payee may charge a “returned check” fee, which is essentially a penalty to discourage you from writing bad checks. You may also face late payment fees if you’re unable to pay using a different method before your payment is due.

Other Complications

Depending on the type of business you write a check to, things can get complicated. Most mortgage companies won’t foreclose on your home if you bounce a check, but they may report late payments if you fall more than 30 days behind on payments. Plus, bouncing a check may be a violation of your contract, which causes a variety of problems.

Some credit card companies increase your rate (or remove any promotional rates) if you bounce a check or pay late. Other credit card companies might change the terms of your card if you have a universal default clause.

Finally, you may end up in databases of people who have a history of writing bad checks. ChexSystems and other consumer reporting companies keep track of individuals who bounce checks and go negative in their accounts. If those databases have negative information about you, banks and others may not want to open accounts for you. Retailers who use check verification services may refuse to accept checks from you as well.